Vices and Virtues of Limiting Executive Compensation

Russell Roberts

In this testimony, Professor Russell Roberts explains that the problem with executive compensation is that executives have not been subject to the profit and loss cosequences of the free-market system. Profits encourage risk-taking, and the losses encourage prudence. If the government would resist bailouts and allow these incentives to be fully operational, there will be better outcomes as large institutions will no longer be reliant on taxpayer funds.